Pachinko debut may start Japanese IPOs rolling
The listing of Japanese pachinko operator Dynam Japan in Hong Kong on Monday might be the start of many more IPOs in the city by Japanese businesses.
More than 10 Japanese companies, including pachinko operators, clothing companies, car parts manufacturers and consumer-product manufacturers, are preparing to list in Hong Kong. If they succeed, they will have a total market capitalisation of more than US$1 billion, according to Eugene Liu, partner of RSM Nelson Wheeler, the Hong Kong branch of RSM International, a global network of accounting firms.
'US$100 million for a company's market capitalisation is the bare minimum. You can list a company for less than that but it doesn't make economic sense,' Liu said.
Dynam, which hoped to raise US$200 million, would be the first Hong Kong IPO of a Japanese company, Mitch Minakata, a senior partner at Seiwa Audit, the Japanese branch of RSM International, said.
'We have been in talks with other pachinko operators to list in Hong Kong. Many of them want to list here, not just one or two,' Minakata said.
'Dynam is already a major push for Japanese pachinko operators wanting to list in Hong Kong. If Dynam does well, it's good news not only for pachinko operators but all Japanese companies who wish to go abroad for financing.'
Minakata said that one reason for Japanese companies coming to list in Hong Kong was the tightening in Japan's stock market regulations over the past five years.
'The standard for getting listed in Japan is getting higher,' he said.
He said that in recent years, a Japanese version of the US' Sarbanes-Oxley Act had been introduced.
'It's too tight for companies. You don't have a Sarbanes-Oxley in Hong Kong,' Minakata said.
The US enacted the SarbanesOxley Act in 2002, setting new and tougher standards for all public company boards, management and public accounting firms.
But Minakata rejected suggestions that Hong Kong's stock exchange had lower standards than Japan's. He said the Hong Kong exchange maintained rigorous internal controls, 'but is more practical'.
Pachinko operators were not allowed to list on Japanese stock exchanges because the Japanese market viewed pachinko as a grey industry, Minakata said.
Dynam's IPO prospectus warns: 'Because no Japanese laws explicitly address the legality of the Three Party System on which the pachinko industry is based, there are legal uncertainties with respect to our business. We face the risk of anti-social forces being involved in the pachinko industry. The pachinko industry has historically been linked to anti-social forces.'